Acquisitions have helped Newport grow
Newport Corp. (Irvine, CA) is one of the most successful companies in the global photonics industry. The company was established in 1969 to manufacture vibration isolation equipment but has subsequently developed a broad-based electro-optics business and be come one of the largest companies in the industry. In the following interview with Robert Deuster, Newport`s chairman, president, and CEO, Jan Melles explores the impact that mergers and acquisitions have had on the company`s growth.
Jan Melles: Bob, Newport clearly has been one of the success stories in the photonics industry. What has been the key to your company`s success?
Robert Deuster: From day one we had a clear vision to grow the company from its base of making optical tables to a concept to add value to that base product line. This led to our offering a wide range of optomechanical components such as component holders and positioning equipment, with the latter becoming one of our strongest product lines; it remains so until this day. We also believed strongly in supporting our product, generating activities by an efficient marketing and distribution capability, domestic as well as overseas.
For many years most of our customers were active in R&D but, given the substantial reduction in growth of this market--now growing about 5% worldwide--we felt a need to broaden the company`s product base in areas offering more potential. Today this market segment represents only 40% of our overall sales, whereas, as little as five years ago, it was our primary market.
With a clear change in the company`s strategic direction, we moved into industrial markets and are currently active in test and measurement equipment and computer peripherals for the semiconductor manufacturing industry. Applications include vibration isolation and motion systems for media- or device-testing stations. Other markets include fiberoptic communication systems with items like automated fiber pigtailing systems and waveguide alignment workstations.
These new areas currently represent 35% of our sales with a growth rate of between 15% and 25%. The remaining 25% consists mainly of vision measurement systems, also enjoying growth rates substantially higher than the R&D market.
Melles: Your stock price has gone u¥dramatically this past year. What has been the key reason?
Deuster: First of all, performance from a shareholder`s perspective: We have entered new markets and they have recently boosted sales, but we also kept a close watch on expenses, notably leaner on the sales, general and administrative and more focused on R&D, which led to a strongly improved bottom line. And the market perception of Newport has also changed because we are more balanced and pursuing markets commonly seen as having strong growth potential.
Melles: What role have mergers and acquisitions played in the company`s growth?
Deuster: An essential one, although not the dominant one, which remains product development. The acquisition of RAM Optical and Light Control Instruments in 1995 and MikroPrecision Instruments in 1996 allowed us to enter the markets mentioned previously that are now such an important and fast-growing part of our business.
Melles: Tell me, Bob, what do you look for when you are considering buying a business?
Deuster: Our number-one criterion is that the acquisition target must have technology, product range, and markets served that support growth in the markets we have targeted. We also rely heavily on good management. Profitability is clearly preferred, but we have no problem with buying a business that is not currently profitable as long as it has the clear potential to become so within a year. In the end, the overall goal must be that shareholder value will be increased.
Melles: All the acquisitions you mentioned took place in the USA. Is this by choice or do you also anticipate buying an overseas business?
Deuster: There is no strategy to limit our acquisitions to US-based firms. If we can acquire an attractive company in Asia or Europe we will not hesitate to do so. With approximately 60% of our sales coming from the USA, we feel there is ample room for growth, particularly in Asia where our sales represent only about 15% of our total sales.
Melles: One acquisition you did not mention has been Micro Controle. You acquired MC in 1989. At the time it was the same size as Newport. It has been known in the industry that this was been a difficult project. What has been learned from this experience?
Deuster: We clearly underestimated the difficulty of managing a business in France, with a culture and management style that was radically different from ours. Also language problems contributed to these complexities. We did learn that these factors are vitally important when acquiring a foreign company.
Melles: Buying a business, although fairly complex as a process, is not too difficult. The more challenging part is to successfully integrate an acquired business into your own. What do you think is needed to do so successfully?
Deuster: I consider three items to be essential to achieve such an objective:
1. The management of the acquired business must, without reservation, fully support our overall strategy. If there is any difference of opinion on that, you have a serious problem from day one.
2. It is essential that manufacturing, R&D, and sales of both companies are properly aligned.
3. Redundancies must be minimized.
Melles: What advice would you pass on to your peers in the photonics industry on mergers and acquisitions?
Deuster: Only buy companies that clearly match your own strategic objectives. We won`t buy companies just to get bigger. The litmus test must always be: "How does this acquisition contribute to shareholder value?"
Melles: Bob, thank you very much for this interesting conversation. o